Brazil after the impeachment, what is next?

12-05-2016 | Actualités

After four months of discussions in Brazilian Congress, Brazil's Senate concluded that President Dilma Rousseff should face a full impeachment trial. The emerging markets equity team is cautiously optimistic and has reduced its underweight in Brazil.

Daniela

da Costa - Bulthuis

Portfolio Manager & Country Specialist

Speed read

President Rousseff suspended from office today

We welcome the new interim president and economic team

Being cautiously optimistic, we have reduced Brazil’s underweight

Ms. Rousseff is accused of illegally manipulating finances ahead of her re-election in 2014 and afterwards in 2015; mismanagement of state-owned companies and banks, among other responsibility crimes. She will be automatically suspended from office from today onwards, in order to wait for her final trial in the Senate within the next six months. In order to have a conviction, two thirds of the Senate need to vote for impeachment. Given the result of the first voting section held yesterday, there are already enough votes to convict President Rousseff in her final trial. Vice President Michel Temer is taking charge temporarily and after Ms Rousseff’s trial, if her expected conviction occurs, permanently.

Experienced interim president

Mr Temer is a Law professor, was a Congressman and Speaker of the Lower House for two terms before becoming Vice President. He is the leader of the biggest political party in Brazil, PMDB, and has over 20 years of experience in dealing with Congress. Expectations are that interim President Temer will use his experience and current support within Congress to push for liberal measures and reforms that could improve confidence and bring the Brazilian economy back on track, after three years of recession. Among the most important measures discussed are pension, political and tax reforms, independence of the central bank, the end of the indexation of the government budget and privatizations.

Mr Temer should address the nation and announce his ministers team later today. Former Central Bank Governor Henrique Meirelles is confirmed as the new Finance Minister and Chief Economist of Itau and former Central Bank Director Ilan Goldfajn, as the new Central Bank Governor. Expectations are that a new economic plan comprising the above-mentioned measures should be announced and sent to the Congress by the end of May.

Underweight reduced

In our view, the focus of the new government will be on the recovery of credibility and economic growth. We welcome the new economic team, professionals with vast experience in the public and private sectors. Brazil has severe structural issues and a worryingly high debt. If reforms and liberal measures are pushed forward, we expect investments and growth to come back to the country. At the moment we are cautiously optimistic about the possible changes in Brazil, and have reduced our underweight position in the emerging market equity portfolios.